Spain in recession as economy shrinks 18.5% in the second quarter

The coronavirus pandemic destroyed more than a million jobs in Spain in the second quarter, mostly in the services and tourism sector. (Reuters)
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Updated 31 July 2020

Spain in recession as economy shrinks 18.5% in the second quarter

  • A recession is commonly defined as two consecutive quarters of a contraction in GDP

MADRID: Spain plunged into recession in the second quarter after its gross domestic product tumbled by 18.5 percent due to the coronavirus pandemic, official figures showed on Friday.
In the first quarter, growth had fallen by 5.2 percent, the Institute of National Statistics said (INE). A recession is commonly defined as two consecutive quarters of a contraction in GDP.
The first of estimate by INE is broadly in line with the forecast by the Bank of Spain which had seen a contraction in the economy of between 16 and 22 percent for the period between April to June at the height of the lockdown when all non-essential activities were halted.
The restrictions imposed under the state of emergency, which began in mid-March, were only gradually lifted in May and June.
The business, transport and hotels sector were all badly hit, with a 40 percent drop compared with the first quarter.
And tourism, a pillar of the Spanish economy which accounts for 12 percent of GDP, suffered with a 60 percent drop in revenues compared the same period in 2019.
Construction fell by 24 percent compared with the first quarter and industry by 18.5 percent. Household consumption dropped by around 21 percent and business investment by 22 percent while exports fell by around a third.
The Spanish government sees the economy contracting by 9.2 percent overall in 2020 but the Bank of Spain says that figure could reach 15 percent.
Analysts at Capital Economics said they were expecting the Spanish economy to contract “by some 12 percent this year and then recover only slowly thereafter, with a return to pre-virus size years away.”
“The record plunge in Spain’s GDP of 18.5 percent is likely to have been one of the biggest falls of any euro-zone country in the second quarter, illustrating the severity of the country’s lockdown and its slow and partial recovery,” it said in a note.
“And the recent rise in virus cases is likely to hold back the recovery in tourism, strengthening our view that the Spanish economy will struggle to rebound as quickly as its neighbors.”
Spain suffered a particularly deadly outbreak of the virus, with more than 28,400 people losing their lives.
However, it will benefit considerably from the historic €750 billion rescue plan that was agreed by the European Union’s 27 member states on July 21.
Under the plan, Spain will receive €140 billion ($162 billion) of which just over half — or €73 billion — is in the form of subsidies, while the rest is in the form of loans.
According to Economy Minister Nadia Calvino, the measures taken by the government to prop up the economy — such as extending its furlough scheme, state-sponsored loans, subsidies for the self-employed — enabled Spain to avoid “a collapse in GDP of more than 25 percent.”
The pandemic also destroyed more than a million jobs in Spain in the second quarter, mostly in the services and tourism sector.
Unemployment hit 15.3 percent by the end of June and is expected to reach 19 percent by the year’s end, the government says, although the IMF sees that figure rising to as much as 20.8 percent.


S&P 500 inches closer to record high

Updated 12 August 2020

S&P 500 inches closer to record high

  • US stock market index returns to levels last seen before the onset of coronavirus crisis

NEW YORK: The S&P 500 on Tuesday closed in on its February record high, returning to levels last seen before the onset of the coronavirus crisis that caused one of Wall Street’s most dramatic crashes in history.

The benchmark index was about half a percent below its peak hit on Feb. 19, when investors started dumping shares in anticipation of what proved to be the biggest slump in the US economy since the Great Depression.

Ultra-low interest rates, trillions of dollars in stimulus and, more recently, a better-than-feared second quarter earnings season have allowed all three of Wall Street’s main indexes to recover.

The tech-heavy Nasdaq has led the charge, boosted by “stay-at-home winners” Amazon.com Inc., Netflix Inc. and Apple Inc. The index was down about 0.4 percent.

The blue chip Dow surged 1.2 percent, coming within 5 percent of its February peak.

“You’ve got to admit that this is a market that wants to go up, despite tensions between US-China, despite news of the coronavirus not being particularly encouraging,” said Andrea Cicione, a strategist at TS Lombard.

“We’re facing an emergency from the health, economy and employment point of view — the outlook is a lot less rosy. There’s a disconnect between valuation and the actual outlook even though lower rates to some degree justify high valuation.”

Aiding sentiment, President Vladimir Putin claimed Russia had become the first country in the world to grant regulatory approval to a COVID-19 vaccine. But the approval’s speed has concerned some experts as the vaccine still must complete final trials.

Investors are now hoping Republicans and Democrats will resolve their differences and agree on another relief program to support about 30 million unemployed Americans, as the battle with the virus outbreak was far from over with US cases surpassing 5 million last week.

Also in focus are Sino-US tensions ahead of high-stakes trade talks in the coming weekend.

“Certainly the rhetoric from Washington has been negative with regards to China ... there’s plenty of things to worry about, but markets are really focused more on the very easy fiscal and monetary policies at this point,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.

Financials, energy and industrial sectors, that have lagged the benchmark index this year, provided the biggest boost to the S&P 500 on Tuesday.

The S&P 500 was set to rise for the eighth straight session, its longest streak of gains since April 2019.

The S&P 500 was up 15.39 points, or 0.46 percent, at 3,375.86, about 18 points shy of its high of 3,393.52. The Dow Jones Industrial Average was up 341.41 points, or 1.23 percent, at 28,132.85, and the Nasdaq Composite was down 48.37 points, or 0.44 percent, at 10,919.99.

Royal Caribbean Group jumped 4.6 percent after it hinted at new safety measures aimed at getting sailing going again after months of cancellations. Peers Norwegian Cruise Line Holdings Ltd. and Carnival Corp. also rose.

US mall owner Simon Property Group Inc. gained 4.1 percent despite posting a disappointing second quarter profit, as its CEO expressed some hope over a recovery in retail as lockdown measures in some regions eased.

Advancing issues outnumbered decliners 3.44-to-1 on the NYSE and 1.44-to-1 on the Nasdaq.

The S&P index recorded 35 new 52-week highs and no new low, while the Nasdaq recorded 50 new highs and four new lows.